While Musk is focused on Twitter, his $56 billion Tesla payment is on trial

WILMINGTON, Del., Nov. 7 (Reuters) – As Elon Musk took to Twitter, the businessman headed to trial to defend his record $56 billion Tesla Inc pay package against claims it unfairly enriched him without requiring his full-time job. located in the carmaker.

A Tesla (TSLA.O) shareholders are seeking to void Musk’s 2018 pay agreement, saying the board set easy performance targets and that Musk created a package to finance his dream of colonizing Mars.

Tesla has countered that the package sent an extraordinary 10-fold increase in value to shareholders.

The trial began on November 14 and will be decided by Kathaleen McCormick on Delaware’s Court of Chancery. He oversaw Twitter’s lawsuit against Musk that ended last month when he agreed to close a $44-billion deal for Twitter, an acquisition he financed in large part with his Tesla stock.

“If Musk loses this pay package in some big way, maybe we can expect to see a lot of things that will be difficult to predict, like what happened going forward in terms of how Tesla is run and how Twitter is paid for,” said Ann Lipton, a professor at Tulane Law School.

However, Lipton and other legal experts said a lawsuit by Tesla shareholder Richard Tornetta would be more difficult than Twitter’s case against Musk.

Musk founded and CEO SpaceX, one of the most valuable private companies in the world, and founded or founded Neuralink, which makes brain implants, tunneling business The Boring Co, and OpenAI, an artificial intelligence research laboratory. Last week, he appointed himself the CEO of Twitter.


Tornetta’s lawyers argued that the 2018 package failed to focus Musk on Tesla. They described Musk as a “part-time CEO,” citing testimony that in 2018 he worked Tuesdays, Wednesdays and Fridays at an electric car factory and Mondays and Thursdays at the rocket company SpaceX, according to his deposition.

According to the lawsuit, Tesla board chair Robyn Denholm said Musk’s “minimal time” at Tesla “became more problematic” in a 2018 email to Gabrielle Toledano, who at the time was Tesla’s Chief People Officer.

The company said the package does not require Musk to clock in and be on site for specific hours each week, but to hit “audacious” targets, enriching Musk but also shareholders like Tornetta.

The disputed pay package allows Musk to buy 1% of Tesla shares at a substantial discount each time performance increases and financial targets are met; otherwise musk gets nothing. Tesla has hit 11 of 12 targets as its value ballooned to $650 billion from $50 billion on the back of ramped up Model 3 production, according to court papers.

Musk’s vested endowment is worth about $50 billion, according to Amit Batish at Equilar, an executive pay research firm. The grant contributed to his fortune of $ 200-billion, the largest in the world.

Musk’s stock grant package is larger than the combined pay of the 200 highest-paid CEOs last year — six times more, according to Batish.

The trial is likely to focus on Tornetta’s claim that the package was developed and approved by directors looking to Musk and promoted to shareholders without disclosing that the first tranches were likely to be met based on internal projections.

Board control

Tornetta’s filings are full of examples of the board controlled by musk.

For example, Antonio Gracias, described by the plaintiff as a close friend of Kasturi and who served as an independent director from 2010-19, testified in his 2021 deposition that Kasturi could sell Tesla if he wanted and the board could not stop him.

“Who works for whom? Does Elon Musk work for the board or does the board work for Elon Musk,” said Minor Myers, a professor at the UConn School of Law.

Myers said if the pay package is rescinded, the board can simply create a new one and do it with McCormick’s ruling to guide them.

But the situation has changed, complicating the process.

“He now owns Twitter. How do they want to factor that in?” said Myers, who added that it will be a challenge to determine how to protect musk from being disturbed by other ventures.

“How much money do they have to put in front of this guy to get his attention,” he said.

Reporting by Tom Hals in Wilmington, Delaware; Additional reporting by Hyun Joo Jin in San Francisco Editing by Noeleen Walder and Nick Zieminski

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